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Tips for First-time Real Estate Investors

Are you looking for a way to vary your investment portfolio and save for the future? For a number of people, becoming a real estate investor is an attractive way to build a nest egg, since the investing the tenants help to pay the mortgage and property may bring a better rate of return than stocks or bonds. Before getting your feet wet in the world of becoming a landlord, you need to consider your choice very carefully. Here are some suggestions for first-time investors.

What First-time Real Estate Investors Need to Know

  1. Consult with your bank or a mortgage broker to find out how much you can comfortably borrow for your investment.
  2. You’ll want to find a property that is generating a positive cash flow. The rent from all tenants must be high enough to pay the mortgage, insurance, utilities, and property taxes. Be sure to add on an extra amount (10% or so) to cover minor repairs. Don’t confine your search to the City of Toronto only; if you are open to looking in outlying areas, you can find well-priced properties that fit this criteria.
  3. Have the property inspected by a professional inspector. If any repairs are required, get an estimate from a contractor you can trust who will be able to add the most value to your investment.
  4. If you are buying the property with a partner, have a formal written agreement to protect each of your interests. You’ll want to cover: what happens if one of you wants to sell the property and the other one does not, how to deal with the situation if one person is not paying his or her share of expenses, and what happens if one partner dies.
  5. Keep detailed business records of all income and expenses for your investment property. Keep the money from it separate from your personal funds to make it easier to complete your income tax form at the end of the year, especially if you own the investment property under a business name.
  6. Hire a property manager to help you find tenants and deal with day-to-day maintenance and repairs, as well as tenant complaints. Unless you want to have to deal with these matters at night or on weekends, it’s worth the money.
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